- (Topic 3)
Rene, age 39, is a framing carpenter at a company that builds doors and windows. He has group disability insurance equivalent to 60% of his annual salary, which is $70,000. His monthly living expenses are $3,500. Since he has no pension plan at work, Rene has enrolled in an individual RRSP through payroll deductions ($1,000 per month). His RRSP savings currently amount to $45,000. In addition, Rene has $10,000 in a non-registered savings account. What should Rene??s life insurance agent advise him?
Correct Answer:D
Comprehensive and Detailed Explanation:
Rene??s salary is $70,000/year, and his group disability insurance provides 60% of this, or $42,000/year ($70,000 ?? 0.60), equating to $3,500/month ($42,000 ?? 12). His monthly expenses are $3,500, so this just covers his needs if disabled. However, the LLQP stresses considering unexpected expenses (e.g., medical costs, inflation) beyond basic living expenses (Chapter 2:Insurance to Protect Income).
RRSP contribution: $1,000/month, savings: $45,000 (registered) + $10,000 (non- registered).
40% of salary = $70,000 ?? 0.40 = $28,000/year or $2,333/month.
Option A: Incorrect; $3,500/month matches expenses but leaves no buffer for unforeseen costs.
Option B: Incorrect; RRSPs are for retirement, not disability liquidity, and don??t enhanceimmediate protection.
Option C: $1,000/month additional coverage is arbitrary and insufficient for 40% of salary; it doesn??t align with needs analysis.
Option D: Correct; 40% of salary ($2,333/month) on top of $3,500 provides $5,833/month, offering a safety net for unexpected expenses, consistent with LLQP??s holistic protection approach (Chapter 6:Client Profile).
Reference: LLQP Accident and Sickness Insurance Manual, Chapter 2:Insurance to
Protect Income, Chapter 6:Client Profile.
- (Topic 1)
Akeno is a 65-year-old retired accountant. He is divorced and has a 40-year-old son who is financially independent. Thanks to years of diligent savings, Akeno now enjoys a comfortable retirement. In addition to his pension income, he has over $300,000 invested in shares in his non-registered account. He lives in a mortgage-free home valued at $700,000 and owns a cottage valued at $500,000. The mortgage on the cottage is $100,000. Akeno purchased the homes 30 years ago when housing prices were low. It is important to him to donate $100,000 to the Alzheimer's Association when he dies. What is the GREATEST financial risk that would arise in the event of Akeno??s death?
Correct Answer:C
Akeno??s greatest financial risk upon death isIncome tax, primarily due to the capital gains taxes that would be incurred on the disposition of his non-registered investment assets and potentiallyhis real estate properties. With significant investments and property appreciation, there may be substantial tax liabilities upon his death. Other options, such as loss of income and debt repayment, are less relevant given his financial stability and the low outstanding debt on the cottage mortgage. Estate creation is not a concern as he has sufficient assets.
- (Topic 1)
Jasper owns TeleVida, a successful production company with over 50 employees. He wants to expand the company by opening an office in another province. Jasper needs to take out a $500,000 20-year loan to make this expansion happen. However, he wants to make sure that if hedies while there??s an outstanding balance on the loan, the balance will be paid in full by the insurance company.
Correct Answer:A
In this case, Jasper is concerned with covering a specific loan balance that will decrease over time as the loan is repaid. A20-year decreasing term life insurancepolicy is typically used for situations where the coverage amount decreases over the policy term, aligning with the declining balance of a loan. This is often the most cost-effective option, as the coverage amount decreases in line with the outstanding loan balance, ensuring that the insurance will pay off any remaining loan balance if Jasper dies within the 20-year term. Other options, such as a standard term policy with a level benefit (Option B), a Term-100 (Option C), or a Universal Life policy (Option D), provide level or flexible coverage not specifically suited to decreasing liabilities like a loan. Therefore,Option Ais the best choice to meet Jasper??s needs cost-effectively.
- (Topic 5)
Lily works for Cloud 9 Inc. She earned $120,000 in Year 1 and $125,000 in Year 2. Lily contributes 5% of her income into a defined contribution pension plan (DCPP), and this contribution is matched by the employer. Lily has unused contribution room of $15,000 andwants to know how much she can contribute to her registered retirement savings plan (RRSP) in Year 2.
Correct Answer:A
Lily??s RRSP contribution room is reduced by her DCPP contributions. Her total income for Year 2 was $125,000, and she contributed 5% ($6,250) to the DCPP, matched by the employer, for a total of $12,500. The Pension Adjustment (PA) for her DCPP contribution would be $12,500, which reduces her RRSP contribution room.
Calculation:
RRSP limit based on previous year??s income (18% of $120,000): $21,600 PA reduction: $12,500
Remaining RRSP contribution room for Year 2: $21,600 - $12,500 = $9,100 Including her unused contribution room: $9,100 + $15,000 = $24,100
So, Lily can contribute $24,600 to her RRSP in Year 2.
- (Topic 4)
Danny purchases a $1,000,000 whole life insurance policy. He names his three daughters, Donna-Joe, Stephanie, and Michelle, as revocable beneficiaries with each receiving one- third of the death benefit.
If Michelle predeceases Danny, and Danny did not have a chance to modify his beneficiary designation, how will Danny??s death benefit be paid out?
Correct Answer:A
When a beneficiary is designated as "revocable" and predeceases the policyholder, their share of the benefit typically reverts to the surviving beneficiaries rather than the deceased beneficiary??s estate. In this case, since Michelle has predeceased Danny, her portion of the benefit is divided equally between Donna-Joe and Stephanie, the remaining beneficiaries. Therefore, each of them would receive 50% of the total death benefit, which is $500,000. If the beneficiaries had been designated as "irrevocable" or if there were specific contingent beneficiaries, different rules might apply.
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